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“Where IT is given a “production” role – IT focus heavily on traditional governance that in turn does not support business value creation or unpredictability”

A couple of days ago, I had a discussion with an IT strategist with an assignment to improve cost efficiency and business value. Not an uncommon mission in our constant quest for efficiency gains. We started to talk about how to go about the task and ended up in a discussion around IT performance management, learning and self-governing. A great start!  Right on track! But how come IT Performance Management, such a strategic IT important practice, is seldom correctly defined or a major topic at conferences? IT Governance, on the other hand, is the focus on endless conferences and consultant offerings. How does these two actually relate?

First step is to understand that there are many definitions of IT Governance. Even though IT Governance is a central element in IT management – there are diverging definition of this key topic depending on whom you talk to. But what I can conclude from reading different definitions is that IT Governance focus on internal IT efficiency – achieving IT goals. Making IT more productive by focusing on service management frameworks (such as ITIL), resource allocation principles, and management control. IT governance units (usually in the CIO office domain) are set up to define the directive and frameworks for the executive part of IT to comply to.

Traditionally, IT organizations have focused on IT governance as a method to achieving the long-term IT strategy and value creation. IT Performance Management was marginalized to only administrate performance data – to ensure compliance to IT guidance and policies and justifying decisions. With this traditional view, IT governance was about how to run projects in the best way, and performance management about measuring their success (did we follow the methodology). If only the projects were run according to the best in class project waterfall methodology – all our troubles will be solved. Well, maybe not.

My view is that IT Governance, IT Performance Management and IT Strategy have different focus areas. Here is my attempt on defining these concepts:

Concept Definition
IT Strategy The holistic roadmap for achieving strategic long-term goals – strategic direction (business value) – where are we going?
IT Governance IT Guiding Principles and guidance/policies (cost, risk, projects, roles responsibilities, etc.) for ensuring achievement of IT internal objectives.
IT Performance Management Framework for IT to achieve strategic business objectives by planning, monitoring and ensuring change of IT business systems or behavior. (Plan/Do/Check/Act) Continuous improvement

Table 1: Definitions

But times are changing. Increased unpredictability (due to digitalization) and higher demand for business value is re-writing the map for IT management.  Gartner stated in 2012 survey that the most common word in CEO reports is the word “unpredictable”. They also stated in research that the biggest threat to business models during coming years comes from advances in IT and technology. Based on this changes (driven by digitalization), many IT organizations are adapting a business/customer value driven approach, where the purpose of IT is its ability to contribute to business competitiveness and success (IT for business). Still, my estimate is that approximately 50% of IT organizations are trapped in a traditional view producing IT services for the good of IT (IT for IT).

In all fairness, the problem with IT organizations locked in traditional governance (IT for IT) is both due to business “old fashion” view of what IT does and ITs ability to justify its existence. Where IT is given a “production” role – IT focus heavily on traditional governance that in turn does not support business value creation or unpredictability (HBR 2013). The consequences of this behavior is constraining IT performance and business competitiveness. Somehow, IT needs to justify its existence as a strategic partner in creating competitive advantages. Showing its ability to create business value. Showing that they actually understand the business challenges and how to contribute. Not always the case. Many IT leaders gladly take the “production” (IT for IT) role, as it is suits their technical background and need for control and comfort. That is another story.

An effect of the new IT business landscape is a new balanced view of IT Governance and IT Performance Management. Both practices are needed to deliver business value (stability and IT business agility). But the new trend is that it is IT Performance Management is driving the IT business value creation. IT Performance Management is defining how to optimize business value based on business needs. One such need might be operational stability and operational excellence. But the need varies over time – especially in an unpredictable environment. It is therefore up to Performance Management to set priorities and strategic focus based on what optimized business value – that IT Governance principles need to follow.

A second view is that unpredictability is also influencing the relationship between strategy and performance management. The forecasting possibility is decreasing to 6-12 months in many industries meaning that it is more and more difficult to make a long-term IT strategy. The effect of this trend is more generic and iterative focus to develop IT strategy. In other words, that IT strategy work is integrated in Performance Management framework (Plan/Do/Check/Act) – making it more agile or dynamic. This means that the Performance Management cycle runs on 6-12 months basis and review the strategy and governance principles on 6 months basis in most industries.

  Performance Management Governance
Purpose Optimizing business value

(external)

Optimizing IT value

(internal)

Information Business & IT IT
Environment Unpredictability Predictability
Method Strategic planning

(value driven)

Guidance, policies and principles (controlling)
Value creation Customer Intimacy Operational Excellence
KPI focus Business value (70%) IT internal (90%)

Table 2: Characteristics of Governance and Performance Management

So, what does this actually mean for IT organizations. It is interesting to notice many organization’s obsession with IT governance that clearly is not a correct approach to manage unpredictability and need to support business competitive advantage. It is understandable since the concepts are mixed up but still says something on the focus of IT organizations – and its effects. Almost half of CEOs rate (HBR 2013) their CIOs negatively in terms of understanding the business and understanding how to apply IT in new ways to the business. CEO rate (Gartner 2012) IT/technology in 6th place in list “key source of sustained economic value” to the firm.

Recommendations:

  1. Ask yourself how your IT organization delivers business value. If you cannot answer that single question – then you are in trouble. A clue, it is not through extensive control.
  2. Find a balanced between IT governance and IT performance management to deliver best possible business value.
  3. Challenge your IT management consultants to describe concrete effects of digitalization and how to use Performance Management as solution – not governance.

So, now we have probed the difference between IT governance and IT Performance Management, and their ability to address unpredictability and business value. More and more IT strategists in IT organizations are becoming increasingly aware of the difference between IT governance and IT performance management – and how they are used. That business value is driving the need for IT Performance Management. This is a good thing! This is driving development in the right direction. The snowball is starting to roll. The remarkable thing is that many consultants, analysts and conferences that still focus heavily on IT Governance as a solution to increase business value, influencing CIOs in that “selected truth” – probably time to wake up soon.

Hans Legend 1